When and How Must a Notice of Termination of COBRA Coverage Be Provided?

QUESTION: In an effort to administer COBRA as economically as possible, we do not send bills for COBRA premiums or provide reminders when COBRA premiums are late. If qualified beneficiaries do not pay their COBRA premium for a given month by the end of the grace period, we do not contact them—we simply cut off COBRA coverage retroactive to the beginning of the month. Are we complying with COBRA?

ANSWER: Not completely. While COBRA does not require plans to send bills or premium payment reminders, there are some circumstances in which written communications will be required. Most notably, plan administrators must provide a written notice of termination if a qualified beneficiary’s COBRA coverage terminates before the end of the maximum coverage period. As a reminder, the COBRA maximum coverage period is generally 18 or 36 months, depending on the qualifying event that triggered the COBRA election. COBRA may be terminated before the end of the maximum coverage period for certain reasons specified in the COBRA statute, including a failure to timely pay premiums.

When COBRA is terminated early, each affected qualified beneficiary must receive a notice “written in a manner calculated to be understood by the average plan participant” and stating (1) the reason why COBRA coverage has terminated early; (2) the coverage termination date; and (3) any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage. In general, this notice of termination must be furnished “as soon as practicable” following a decision to terminate COBRA coverage. Provision of the notice in advance of coverage termination is not necessarily required, but if the plan administrator is able to do so under the “as soon as practicable” standard, it must. A single notice may be provided to a covered employee and the employee’s covered spouse (if they live at the same address) by addressing the notice to both of them. And a notice to the covered employee or spouse satisfies the requirement with respect to a dependent child who lives with the person who received the notice. On the other hand, if any of the qualified beneficiaries live at different addresses and that fact is known to the plan administrator “on the basis of the most recent information available to the plan,” then separate notices must be provided. Like other COBRA-required notices, a notice of termination must be furnished using “measures reasonably calculated to ensure actual receipt of the material.” While the DOL-approved methods include mail, hand-delivery, and electronic transmission, we recommend using first-class mail.

Keep in mind that other circumstances may require written communications about COBRA premiums. For instance, qualified beneficiaries should be notified in writing if their COBRA premiums change. And if a plan administrator wants to collect a COBRA premium shortfall that is “insignificant,” a notice must be provided.

For more information, see EBIA’s COBRA manual at Sections XXII.A (“Paying the COBRA Premium: Deadlines and Grace Periods”) and XXIII (“Notice of Termination of COBRA Coverage”), as well as EBIA’s Sample Notice of Termination of COBRA Coverage. You may also be interested in our upcoming webinar “COBRA Basic Training: Practical Compliance Strategies” (live on 10/27/16).